ELEMENT FLEET MANAGEMENT CORP. Q2 First Look: EPS Beat And Guidance Increased
Our take: Positive. EPS beat and 2024 EPS guidance raised.
Overview of results: EFN reported adjusted EPS of $0.29 (basic and diluted
shares outstanding), above both our estimate and consensus of $0.27.
Sources of variance: The EPS beat relative to our estimate came from net
financing revenue ($0.03/share), partly offset by higher operating expenses
(-$0.01/share). A full variance table is provided in Exhibit 1.
Revenue and EPS guidance increased: EFN increased its 2024 guidance
for net revenues from $1.02-$1.04B to $1.06-$1.08B, implying Y/Y growth of
11%-13%. Adjusted EPS (basic shares outstanding) guidance was increased
from $1.05-$1.09 to $1.07-$1.11 (current consensus is $1.09). Adjusted free
cash flow per share guidance was increased from $1.31-$1.34 to $1.32-
$1.36.
Acquisition of Autofleet: The acquisition will enable EFN to accelerate its
digitization and automation initiatives and could unlock new revenue streams.
The transaction amount was not disclosed, but given a team of 70
professionals we anticipate a small transaction value.
Net financing revenue drives the beat: Net financing revenue of $122MM
increased 16% Y/Y, and is higher than our forecast of $109MM. Average
earning assets increased 20.5% Y/Y. The net financing margin of 5.98% was
down 25bps Y/Y, but was 75bps better than our assumption.
Servicing revenue continues to grow at a double-digit pace: Servicing
revenue of $140MM was up 11% Y/Y and lower vs. our forecast of $143MM.
Growth was due to higher origination volumes and higher penetration rates.
Originations guidance maintained: Originations came in at $1.98B, up 5%
Y/Y and below our forecast of $2.1B. Mexico slowed, with growth of negative
1% Y/Y. Management maintained its guidance of $7.0B-$7.4B for 2024.
Syndication revenue in line with our forecast: Syndication revenue was
$12MM, in line with our forecast of $12MM. Syndication volumes increased
86% Y/Y and the syndication rate came in at 1.26%.
Operating expenses higher, but margins in line: Operating expenses of
$122MM were up 13% Y/Y and were higher than our estimate of $117MM.
The operating margin of 55.7% was in line with our forecast of 55.7%.
Management maintained its 2024 full-year guidance of 55.0%-55.5%.
Capital optimization: EFN redeemed all Series C preferred shares in Q2 for
$91MM and all convertible debt was exchanged for 14.6MM common shares
(proceeds of C$172MM). The final step will come with the announced
redemption of Series E preferred shares at end of September for $92MM.
Conference call: Wednesday, August 14 at 8:00 a.m. ET (1-844-763-8274)